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How Much of a Bargain Is Ross's Stock by the Numbers?

Let's take a look.

Numbers can lie -- yet they're the best first step in determining whether a stock is a buy. In this series, we use some carefully chosen metrics to size up a stock's true value based on the following clues:

The current price multiples.

The consistency of past earnings and cash flow.

The amount of growth we can expect.

Let's see what those numbers can tell us about how expensive or cheap Ross Stores(Nasdaq: ROST) might be.

The current price multiplesFirst, we'll look at most investors' favorite metric: the price-to-earnings ratio. It divides the company's share price by its earnings per share (EPS). The lower the P/E, the better.

Then we'll take things up a notch with a more advanced metric: enterprise value to unlevered free cash flow. This tool divides the company's enterprise value (basically, its market cap plus its debt, minus its cash) by its unlevered free cash flow (its free cash flow, adding back the interest payments on its debt). As with the P/E, the lower this number is, the better.

Analysts argue about which is more important -- earnings or cash flow. Who cares? A good buy ideally has low multiples on both.

Ross has a P/E ratio of 15.1 and an EV/FCF ratio of 16.0 over the trailing 12 months. If we stretch and compare current valuations with the five-year averages for earnings and free cash flow, we see that Ross has a P/E ratio of 23.2 and a five-year EV/FCF ratio of 19.3.

A positive one-year ratio of less than 10 for both metrics is ideal. For a five-year metric, less than 20 is ideal.

Ross has a mixed performance in hitting the ideal targets, but let's see how it stacks up against some of its competitors and industry mates.

In addition, over the past five years, Ross has tallied up five years of positive earnings and five years of positive free cash flow.

Next, let's figure out …

How much growth we can expectAnalysts tend to comically overstate their five-year growth estimates. If you accept them at face value, you willoverpay for stocks. But even though you should definitely take the analysts' prognostications with a grain of salt, they can still provide a useful starting point when compared with similar numbers from a company's closest rivals.

Let's start by seeing what this company's done over the past five years. In that time period, Ross has put up past EPS growth rates of 27.8%. Meanwhile, Wall Street's analysts expect future growth rates of 12.2%.

The bottom lineThe pile of numbers we've plowed through has shown us the price multiples that shares of Ross are trading at, the volatility of its operational performance, and what kind of growth profile it has -- both on an absolute and a relative basis.

The more consistent a company's performance has been and the more growth we can expect, the more we should be willing to pay. We've gone well beyond looking at a 15.1 P/E ratio and Ross's numbers are solid all around. This is just a start, but Ross's initial numbers suggest that a deeper dive may be rewarded. If you find Ross's numbers or story compelling, don't stop here. Continue your due-diligence process until you're confident one way or the other. As a start, add it to My Watchlist to find all of our Foolish analysis.